Clause for concern: The impact of tariffs on construction projects in Ireland

The first shot in a trade war?

Never has a press conference on US trade policy been such required viewing for those involved in construction across Ireland. Even before the President of the United States could declare his intentions social media was awash with images from the phones of journalists detailing the individual levels of pain that would be imposed on countries in the hours to come. Given this country’s recent experiences with Brexit, as a nation we are more fluent than most in terms of the potential impacts that uncertainty in trade can bring. The uncertainty that the impending trade war brings will impact economic sectors of all kinds, particularly those whose service delivery requires long term planning such as the construction industry.

The tariffs announced in Washington apply to goods being imported into the United States. However, it is the reaction by the EU in almost certainly, even if not immediately, imposing tariffs on US products that will impact construction projects being delivered in this country [1]. There is no publicly available breakdown of what percentage of imported construction goods comes from the US however the broader category of non-agricultural materials from the US ran close to 18% of all such imports in 2024 [2]. Companies that import construction materials are likely to review their supply chains in a bid to identify suppliers that escape the tariffs. In circumstances where engaging alternative suppliers is not a viable option then it would seem that an increased level of compliance and cost uncertainty is on the horizon. Those increased costs will have to land somewhere and inevitably it will be contractors and employers that will bear the brunt in dealing with the fallout from the change in trade policies. On whom those costs ultimately lie will, as always, depend on the contractual provisions agreed between the parties. Does a contract need to make specific reference to the term “tariff” in order for there to be an impact? To provide context it's worth considering provisions contained in the two main Irish standard form construction contracts.

Duty or tariff, is there a difference?

Clause 15.4 (Change in Law) of the main forms of Public Works contracts sets out a positive obligation on the parties to adjust the ‘Contract Sum’ where there is an increase or decrease in the contractor’s cost due to a change in “customs or excise duties” that occur between, typically, 10 days before the tender was due through to completion [3]. The interim payments to the contractor include for any amount paid according to that provision.

The obvious question is whether the tariffs announced on 2 April fall within the remit of “customs or excise duties”. The answer to that begins in the legislation that applies those duties and finishes in the individual item within a Bill of Quantities or Schedule of Rates. The tariffs will be detailed and applied by the ‘Integrated Tariff of the European Communities’ (TARIC) [4], EU legislation which is directly applicable in all member states and would fall within the definition of a ‘Law’ under those Public Works contracts. In that legislation the tariff is the name given to the combination of the classification of goods and the duty rates which apply to each class of goods [5]. The RIAI Clause 4 (Variations arising from legislative enactments) is broadly similar to Clause 15.4 of those Public Works contracts albeit with a populated ‘Designated Date’ and alternative drafting [6]. Interestingly, the RIAI refers to the imposition or alteration of “duties or tariffs” (emphasis added) indicating a variance between the two terms. A deeper analysis of the distinction between tariffs and duties is beyond the scope of this article however I suspect there is the basis of an argument in there for a clever solicitor to make. The effect of the announcements will be a subject of legal discussion in the months ahead and will be watched closely by those working in the construction industry.

Employer claims?

A key element of both provisions is that they allow for an increase or decrease in the sum to be paid by the employer depending on the impact of the change in law. If a tariff is imposed post tender on goods being used by a contractor in delivering a project then this increases the contractor’s costs. As a result the contractor may seek an increase in the sum it is paid pursuant to the provisions identified above i.e. that the tariff is a qualifying change in law. What may be less apparent is the distinct possibility that Mr. Trump decides at some time in the future to reduce the level of tariffs being applied. In the event that such a variation to a tariff occurs post tender such that the contractor’s costs are reduced then the employer is entitled to seek a reduction to the sum being paid under the contract. Both standard form contracts have a positive obligation for an adjustment to be made in such an instance. This would apply irrespective of whether or not the contractor has made a claim for an increase when that tariff was introduced or whether the contractor has expressly included for tariffs in its original tender sum. An employer could seek to calculate the savings being made by the contractor (whether real or apparent) and look for those savings to be passed on. The practical aspects of making those calculations and indeed proving that such tariffs applied at all would be a challenge for an employer given its lack of knowledge of a contractor’s supply chain. However, it’s not difficult to see how an employer could seek to rely on these provisions to its advantage irrespective of its chances of success. Should an employer prepare itself for such an argument by including a provision in the works requirements? It’s certainly worth consideration.

Conclusion

Given our recent experiences with similar trade disruptions there is no doubt that these announcements create an uncertainty in relation to project delivery that will continue on into the future. There are other factors that will emerge in the coming days such as the lower 10% tariff imposed on the UK. The differing tariff levels on this island will further complicate the position relating to goods crossing the border or indeed coming directly from Great Britain to Ireland. In the grand scheme of pricing construction projects the imposition of tariffs is but another risk to be factored in. The impending global trade disruption may have unexpected monetary consequences for even the most straightforward of builds.

[1] - Article written early Thursday 3^rd April.

[2] – https://www.cso.ie/en/releasesandpublications/ep/p-gei/goodsexportsandimportsdecember2024/

[3] - PWCF1/2/3/4 Clause 15.4 “The Contract Sum shall be adjusted by the amount of any increase or decrease in the Contractor’s cost of performing its obligations under the Contract as a result of a change in Law made after the Designated Date, but before the Date for Substantial Completion of the Works or a Section, that (i) changes [whether by alteration, addition or removal] VAT, customs or excise duties, requirements for a licence to import or export any commodity or Pay-Related Social Insurance and (ii) is not identified in the Works Requirements and (iii) has not resulted in an adjustment in the Contract Sum under another part of this clause 15 or the Contract.” (emphasis added).

[4] – The legal base of the Integrated Tariff of the European Communities (TARIC) is Council Regulation (EEC) No 2658/87 of 23 July 1987 and Commission Implementing Regulation (EU 2018/ 1602 of 31 October 2018 amending Annex I to Council Regulation (EEC) No 2568/87 ([2018] OJ L 273/1).

[5] - https://taxation-customs.ec.europa.eu/customs-4/calculation-customs-duties/customs-tariff_en

[6] - RIAI 2017 Clause 4 “Where after the Designated Date the cost of the performance of this Contract is increased or decreased as the result of any legislative enactment, rule or order or the exercise by the Government of powers vested in it, whether by way of the imposition of new duties or tariffs or the alteration of existing duties or tariffs or the restriction of licences for the importation of any commodity, or by way of affecting the cost of labour or otherwise, the amount of such increase or decrease as certified by the Architect shall be added to or deducted from the Contract Sum as the case may be.”